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Justinas Bucys
VIPA
Lithuanian experience on
financial instruments
Málaga, 13 September, 2018 Open Conference on Project Results
2
Agenda
EE FI’s in
Lithuania
About VIPA
Challenges and
solutions in FI
Lessons learned
1 2 3 4
3
EE FI’S IN LITHUANIA
4
Continuity Re-use Attraction of
private investments
Multiplication of investments
More with less
2007-2013 – first experience setting up Jessica for EE in residential housing, Jeremie for SMEs
2014-2020 – strategic focus on the continuation of established FIs and expansion to other sectors
POSITIVE SOLUTION – FINANCIAL
INSTRUMENTS!
5
Financial instruments
financed from EU funds
443
953
1140
+
1100
Initial contribution
EUR 443m
Initial contribution EUR 443m +
Private funds EUR 510m
EUR 530 m repaid investments
EUR 700m 2014-2020 EU funds +
EUR 1100 m private funds
2007–2013 PP
(7% funds allocated to FIs)
2014–2020 PP
(10% funds allocated to FIs)
6
FINANCIAL INSTRUMENTS IN 2014-2020 – STATE OF PLAY
Loans for the
modernization of
multi apartment
buildings to increase
EE
Loans and
guarantees for the
modernization of
multi apartment
buildings to
increase EE
Multi apartment
modernization fund
74 + 50 + 68 + 100?
MEUR (VIPA)
JESSICA II FoF
150 + 130 MEUR
Leverage Fund (LF) ?
90 + 10 + 500 MEUR
(EIB)
ENERGY EFFICIENCY IN MULTI APARTMENT BUILDINGS 1.347 MEUR (market gap for modernization of multi apartment buildings)
• 237 loans signed (80 MEUR)
• EE increased in 6659
households
Paid to final recipients 72.6
MEUR
JESSICA II:
• 783 loans signed (202 MEUR)
• EE increased in 11896
households
Paid to final recipients 138
MEUR
7
FINANCIAL INSTRUMENTS IN 2014-2020 – STATE OF PLAY
Loans (direct and ESCOs) for renovation of central
government buildings and guarantees for loans
granted by commercial banks for street lighting modernization projects
Energy Efficiency
Fund
79.6 + 19 MEUR (VIPA)
ENERGY EFFCICIENCY IN PUBLIC BULDINGS 167.9 + 95.1 MEUR (market gap for Central govern. public buildings + street lightening)
• 3 loans signed • 4 guarantee confirmation
letters issued • Public procurement for ESCO
projects – on-going Paid to FF 19 MEUR (25 %)
Municipality buildings
renovation Fund
17.3 MEUR (VIPA) + 20
MEUR intermediary bank
Loans for renovation of municipal buildings
• Selection of FIs – on-going
Paid to FF 4.3 MEUR (25 %)
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ABOUT VIPA
EE FI’s in
Lithuania
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About VIPA
Administration
Development
Leveraging public
funds
Awareness
raising, training, information and
communication measures
Assessing and
appraising
Implementation
Established in 2012
Owned by Ministry of
Finance
Acting as NPI
Addressing market
failures
10
About VIPA
5 mln. EUR
80 mln. EUR
Energy efficiency fund
Cultural heritage fund
74 mEUR
Multi-apartment building funds
15 mln. EUR
Dormitories modernization
30 mln. EUR
Acting as financial intermediary for JESSICA (EIB)
50+68 mln. EUR
EBRD loan and green bond issue proceeds
(additional 100 mEUR under negotiations)
28 mln. EUR
Repayable assistance instrument for public
buildings
12 mln. EUR
Special grant instrument
17 mln. EUR
Municipalities buildings
Total funds under management – over 400 mEUR
+ additional 125 mEUR to be mobilized in 2018
11
CHALLENGES AND
SOLUTIONS IN FI
EE FI’s in
Lithuania
About VIPA
12
MAB challenges
Apartment owners related
challenges
- Chronic distrust of population in
Government
- Failed public relations program
- Poorly organized apartment owners
- Large share of owners on fixed
income
- Many low income people were
eligible for heating bill
compensations, and had no
incentive to join the program
Bank related challenges
- Initial reluctance and distrust
- Risk averse
Law related challenges
- Possible state aid issues
- Legality of personal data
handling
- Turning the apartment owners
into borrowers against their will
(possibly), and as a consequence
Other constraints:
- limitations within construction
sector, as mostly small companies
bid for contracts
- success in lowering gas prices
13
MAB Corrective measures • Result based subsidy element introduced
• Municipalities instructed to draw lists of the worst-performing buildings
• Municipalities appointed renovation administrators
• Administrators borrow on behalf and in favor of apartment owners
• Loan remains off the balance of Administrator
• 50% +1 of apartment owners have to agree to join the program
• Gradual phase-out of heating bill compensations
• Technical assistance institution and measures
Main loans conditions:
- 3 % fixed interest rate
- up to 20 years loan maturity
- loan amount - up to 100 % EE investment
- 2 years grace period (during construction)
- no collateral required
- up 40% EE investments
reimbursement subject to energy
savings (gradual phasing-out)
- up to 100% of project development
costs reimbursed
- 100% of reimbursement of
installments to low income families
14
Public buildings challenges Owners related
- Dependency on grants
- No obligations to achieve results
- Low expertise within institutions
- Public debt issues
- Complex projects needed
Bank related challenges
- Reluctance to exercise
additional administrational burden
- Risk averse
Law related challenges
- Procurement related challenges
- Eurostat treatment of off balance
sheet financing
- Complicated PPP process
Other constraints:
- Poorly organized ESCO sector
- Long payback periods
15
Public buildings corrective
measures
• Standardized ESCO procurement documentation and agreement for
public buildings developed (ELENA)
• TA measures introduced
• Quasi-grant (repayable assistance) instrument (blending solution)
introduced
• No alternative instruments are available
• Introducing obligations to the asset owners
• Close work with European institutions on Eurostat treatment
• Training and awareness raising campaigns for recipients
16
LESSONS LEARNED
EE FI’s in
Lithuania
About VIPA Challenges and
solutions in FI
17
Lessons learned • Good knowledge of market conditions and final beneficiaries
(invest in quality of ex-ante assessment):
• Important to see the “big picture”
• Consult with stakeholders, but be consistent and tough, if necessary
• Coordinated in-house development allows for better representation of public interest (although high competence team is needed)
• Allow for more flexibility in ex-ante assessment
• Good planning – milestones and steps to achieve them
• Apply corrections in a timely manner
• Excessive grant funding is detrimental both to donor and beneficiaries
• FI’s do not “fly” if you have similar subsidy (including related sectors) instruments or they are considered
18
Lessons learned
• Important to see the “big picture”
• Consistent policies and stable procedures
• Good knowledge of market conditions and final
beneficiaries (invest in quality of ex-ante assessment)
• Consult with stakeholders, but be consistent and
tough (critical thinking), if necessary
• Good planning – milestones and steps to achieve them
• Apply corrections in a timely manner
• Excessive grant funding is detrimental both to donor
and beneficiaries
• FI’s do not “fly” if you have similar grant instruments
or they are considered
• Delegate process owner
• TA for project pipeline development facilitates the start and
implementation of FI’s
• Challenge to “go first” – must be brave and optimistic
• Standardize and simplify process as much as possible (e.g.
“one stop shop”)
• Think innovatively
• Develop technical assistance facilities and promote your
initiatives
• Ensure quality of implemented projects
• Play “Carrot-and-Stick” game (if motivative measures do not
work, introduce punishing ones)
19
Lessons learned
• Important to see the “big picture”
• Consistent policies and stable procedures
• Good knowledge of market conditions and final
beneficiaries (invest in quality of ex-ante assessment)
• Consult with stakeholders, but be consistent and
tough (critical thinking), if necessary
• Good planning – milestones and steps to achieve them
• Apply corrections in a timely manner
• Excessive grant funding is detrimental both to donor
and beneficiaries
• FI’s do not “fly” if you have similar grant instruments
or they are considered
• Slow start of FIs - raising public awareness, changing mentality, subsidies vs loans, challenge to shift thinking from “grants” to “revolving investments”
• Consistent policies and stable procedures (assurance of on-going political support)
• Need for national reforms – respective strategic changes need to be done before the potential FIs could practically work in other sectors
• Reluctance of financial intermediaries to perform new administrative functions related to ESIF
• If possible try to make room for flexibility, limit restrictions to minimum
• While project pipeline accelerating think of alternative financing sources leveraging public funds
